Man climbing a rope
A restricted market is a type of market in which there is strong government control over the exchange rate within that market. Typically, government regulations will have more influence over the functioning of this market than other markets that tend to change based on a wider range of economic events and circumstances. A tight market is often considered a situation that occurs with currency trading, but it can also be found in other types of market situations.
One of the easiest ways to understand the concept of a restricted market is to consider the exchange rate that involves a currency issued by a specific nation. When the market is restricted, the value of that currency is directly linked to the currency issued by another nation, usually through the use of government regulations. The end result is that the exchange rate of that currency will change according to what is happening with the second currency, rather than other economic factors such as the financial stability of the issuing country.
The overall purpose of a restrictive market is to make use of government laws and regulations to ensure that the market is kept relatively safe. When managed in the best way, the market is less susceptible to possible scams or investment deals that can be somewhat questionable. In some situations, the degree of restrictions present in the market can be quite prohibitive, leading investors to choose to focus their attention on assets that are not traded in that specific market.
A restricted market is not considered the most controlled of all market situations. A blocked market, in which certain transactions cannot be carried out, is generally considered to be the most closed and managed type of market situation. In contrast, a free market enjoys few, if any, real government regulations and restrictions, with a number of economic factors directly influencing the movement in the value of assets traded within that market.
Detractors of a tight market often consider this type of situation to impede free enterprise, effectively limiting opportunities for investors in the market. Advocates of a tight market note that having government regulations in place can often prevent manipulation of that market and, in fact, prevent some investors from losing money. There is no universal agreement on how excessive regulation is, making it sometimes difficult to decide whether a particular market is truly restrictive.